Big oil’s quarterly profits hit £50bn as UK braces for even higher energy bills

Big oil’s quarterly profits hit £50bn as UK braces for even higher energy bills

Labour condemns ‘eye-watering’ gains and renews call for windfall tax to ease pressure on household finances

A customer fills his car with diesel at a BP garage

Bumper profits of nearly £50bn shared by the world’s five biggest oil companies prompted a chorus of calls for higher taxes on the sector as UK households were told to brace for average annual energy bills of more than £3,600 this winter.

The UK firm BP was accused of “unfettered profiteering” after it said on Tuesday underlying profits had tripled to $8.5bn (£6.9bn) between April and June, thanks to high oil prices. It was its biggest quarterly profit in 14 years and BP said it would hand out nearly £4bn to shareholders as a result.

Prices have soared amid fears over supplies of energy caused in part by Russia’s invasion of Ukraine.

Oil profits chart

Oil companies in the UK and beyond have enjoyed booming earnings in recent months on the back of those rising energy prices as households around the world have struggled with soaring bills.

Rachel Reeves, Labour’s shadow chancellor, said the “eye-watering profits” showed that the government was “totally wrong” to have given significant tax breaks to oil companies.

A host of MPs from Labour, the Liberal Democrats and the Green party as well as environmental campaigners called for a higher windfall tax on oil companies.

Fuel price chart

The profits bonanza in the second quarter included a record $11.5bn profit for BP’s FTSE 100 rival Shell, record profits of $17.6bn and $11.6bn respectively for the US’s ExxonMobil and Chevron, plus $9.8bn for France’s Total. In the first six months of the year the companies made combined adjusted profits of nearly $100bn.

As Russia’s invasion grinds on, the research firm Cornwall Insight predicted the energy price cap on annual bills in Great Britain is on track to rise to £3,615 a year from January. That was an increase on its previous estimate of £3,363 made last month.

The cap, which is set quarterly by the energy industry regulator, Ofgem, was at £1,400 a year as recently as October last year. Cornwall predicts the cap will remain above £3,400 for the entirety of 2023, piling further pressure of household finances.

“People will be confounded by the latest profits announced by BP,” said Sharon Graham, the general secretary at the Unite union. “The British economy does not work for workers and their families. Britain’s real crisis isn’t rising prices it’s an epidemic of unfettered profiteering.”

fuel price cap chart

Further energy price increases in the coming months will also put further pressure on the UK’s new prime minister, once Conservative party members choose between Truss and former chancellor Rishi Sunak by 5 September.

The BP chief executive, Bernard Looney, whose total pay in 2021 reached £4.5m, in February described BP as a “cash machine”, even before Russia’s invasion of Ukraine raised prices further. The company’s profit between April and June was its second highest in BP’s history, and rounded off a period that will be remembered as one of the most profitable quarters in the history of the oil industry.

The UK government in May belatedly responded to political pressure amid soaring energy prices with a £5bn windfall tax on oil companies’ “extraordinary profits”.

Reeves criticised the government for at the same time giving the oil companies 80% tax breaks for new investments, allowing them to reduce their tax bills by drilling for more oil. She said Labour would use extra cash from abolishing the tax breaks for a “green energy sprint” instead, as well as for more home insulation to cut energy use.

“People are worried sick about energy prices rising again in the autumn, but yet again we see eye-watering profits for oil and gas producers,” she said on Tuesday.

“Labour argued for months for a windfall tax on these companies to help bring bills down, but when the Tories finally U-turned they decided to hand billions of pounds back to producers in tax breaks. That is totally wrong.”

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The environmental campaign groups Greenpeace and Friends of the Earth also called for a much stricter energy profits levy.

Doug Parr, the chief scientist for Greenpeace UK, said: “While households are being plunged into poverty with knock-on impacts for the whole economy, fossil fuel companies are laughing all the way to the bank. The government is failing the UK and the climate in its hour of need.

“Government must bring in a proper windfall tax on these monster profits and stop giving companies massive tax breaks on destructive new fossil fuel investments.”

Jacob Rees-Mogg, the government’s Brexit opportunities minister, told LBC radio: “I’m not in favour of windfall taxes. The energy industry is enormously cyclical. You need to have a profitable oil sector so it can invest in extracting energy.”

Looney acknowledged the difficulties faced by households on a call with analysts. Energy affordability is an “acute problem for many”, he said.

“We all have to recognise that it’s a very, very difficult place for people, not just in the UK but also around the world,” he said. “We understand that. We get it.”

But he also said BP’s oil and gas operation was “doing what it’s supposed to do: capture the upside from higher prices”. BP also said it had enjoyed massive growth in profit margins from its refineries, which make products such as petrol, diesel and jet fuel – all of which have contributed to rapid inflation in major economies.

Environmental groups said the windfall tax receipts should be invested in energy-saving measures such as insulation for homes in a move that would help to address the climate crisis as well as reducing dependence on despotic oil- and gas-producing regimes such as Russia.

A Treasury spokesperson declined to comment on individual taxpayers but said the £5bn energy profits levy would “help pay for our £37bn support package, which includes direct payments worth at least £1,200 each to the 8m most vulnerable families, a record fuel duty cut, and a national insurance cut worth up to £330 a year for the typical employee”.